the aspen institute federal reserve system achieving sustainability, scale, and impact in community...

THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM

Achieving

Sustainability,

Scale, and

Impact

in Community Development

Federal Reserve Bank of San FranciscoJanuary 24-25, 2006

Kirsten Moy and Greg Ratliff

The Aspen Institute


Supporters Conference Partner: The Federal Reserve System

Research Partners

The F.B. Heron Foundation

GE Consumer Finance - Americas

Deutsche Bank

Past Supporters

The John D. and Catherine T. MacArthur Foundation

The Fannie Mae Foundation

Forum Participants - you!

Thank you!

GE Consumer FinanceAmericas


Aspen InstituteEconomic Opportunities Program

Workforce Development

Microenterprise

Access to Capital and Credit

Practice Areas

Connect the poor and underemployed to the mainstream economy

Facilitate learning

Applied research to stimulate dialog and action

Goals


Conference Goals• introduce a new framework for scale and sustainability for the field

of community development institutions

• explore the feasibility of collaborative models with potential for promoting scale and sustainability among four groups in the community development field

• provide a forum where stakeholders in each group can participate in the exploration and design of business models and share ideas about the future of their respective area of community development

• encourage future dialogue and action on implementation of business models where appropriate


What is Scale?

More capital

More customers

More effectiveness

“Economies of scale” usually refers to the

development of mass markets and progressive cost reduction through

increased business volume. Can the industry groups assembled

achieve this kind of scale?


Why Pursue Scale? To reach more people

To provide access to services to as many low income people and communities as possible on a permanent and sustainable basis

To tap into economies of scale

To become more sustainable

To have greater impact in low income communities


But But … scale itself is not necessarily a suitable proxy

for success.

And the very characteristics - high customization and high touch - that helped make each group successful in the past are barriers to achieving greater impact because they lead to high cost delivery.

In other words, there’s no “economy of scale” if the cost to deliver the service goes up with increasing volumes.

So we need to better understand what scale is,

and the dynamics of getting to scale.


Model for Taking an Innovation to Scale

Source: Alan Okagaki & Associates

IdeaIdeaExperiment-Experiment-

ationation(Innovation(Innovation

& Refinement)& Refinement)

EarlyEarlyReplicationReplication

(Innovation(Innovation& Refinement)& Refinement)

BestBestPracticePractice

InnovationInnovationat Scale!at Scale!

the fantasy short cutthe fantasy short cut

THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEMA Better Model for Taking an Innovation to

Scale


IdeaIdeaExperiment-Experiment-

ationation(Innovation(Innovation

& Refinement)& Refinement)

EarlyEarlyReplicationReplication

(Innovation(Innovation& Refinement)& Refinement)

BestBestPracticePractice

StandardizationStandardization InfrastructureInfrastructureBuildingBuilding

Wide ScaleWide ScaleRoll OutRoll Out

InnovationInnovationat Scale!at Scale!


New Innovationat Scale!


Idea

Experiment-ation

(Innovation& Refinement)

EarlyReplication

(Innovation& Refinement)

BestPractice

StandardizationStandardization InfrastructureInfrastructureBuildingBuilding

Wide ScaleWide ScaleRoll OutRoll Out

the keys to scale


Our Process Research

Publications

Conferences

Interviews

y

z

Case Studies

Banknorth Group

7-11 VCOM

Visa

Ace Cash Express

Allied Capital

The Reinvestment Fund

Fannie Mae Self Help

ACCION

Dell

Unified Western Grocers

Carpet One


Lessons from the

Case Studies


Lessons1.Profitability was the primary driver of product

development. The ability to produce a diversified yet complementary set of products was critical to achieving scale.




2.Demand for services or a clear market gap were the primary drivers in determining which products and services to scale up.





3.Geographic expansion was central to generating sufficient volume of transactions to reach scale.






4.Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development.






4.Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development.

5.Technology investments often led to increased efficiency and cost savings.


Lessons6. Companies partnered to gain specific knowledge

or expertise, or to access a needed component of the product or service.




7. Capital was raised several times; the volume of capital raised was tens of millions in every instance.





8. Several organizations changed their legal structure to accommodate growth.






9. Regulatory changes often supported or enabled growth and expansion.







10.Different management skills were needed at different points in the growth process.


Lessons6. Companies partnered to gain specific knowledge or

expertise, or to access a needed component of the product or service.




10.Different management skills were needed at different points in the growth process.

11.The ability to adapt to changing market conditions allowed organizations to continue growing.


Product Innovation Organizational Innovation

Industry Innovation

Design for scale (e.g., standardization, simplification &

refinements)

InfrastructureTechnology

CapitalPartnering

ManagementNew organizational structures

Regulatory policyStrategic positioning

Industry intermediariesIndustry infrastructureNew sources of capital

imp

ac

tAchieving Scale

ac

tio

ns


Product Level Needs

Practitioners have an urgent need for investment in the following areas of product development: Market research to improve understanding of

current and emerging community needs. Patient capital for experimentation, reinvention

and refinement of products. Pilot testing and eventual roll-out of quality

products that make it through a rigorous development process


Organizational Level Needs

Practitioners have an urgent need for investment to support organizational growth: Infrastructure to integrate larger, often physically

distributed, operations. Technology to increase efficiency, promote cost

savings and higher quality services to low income customers.

Capital to support broader organizational needs e.g., research and development, operational cash flow.

Management expertise to guide larger institutions.


Industry Wide Needs

Improved competitive positioning of the industry possible through a series of investments in: Infrastructure to support institutions across a

range of activities and service delivery methodologies

Industry specific technology: management software, cost accounting, branding marketing and communications

Industry intermediaries that broaden the range and increase the sophistication of the product and service mix offered by an individual organization


Issues facing the CommunityDevelopment

Industry


Child Care Group Focus on state licensed family child care homes

and child care centers. Programs operate as small businesses in

isolation from each other which leads to: High costs, Neglect of fiscal and administrative issues, Neglect of infrastructure, Minimal program improvements.

Seeks to understand gaps in infrastructure, reduce administrative costs, increase financial expertise of field, facilitate growth of programs.

Organized by Low Income Investment Fund


Charter School Group Focus on charter school development in

California where there is a critical mass of schools.

Charter operators must act as educators and business managers: Lack of central administration creates heavier back office

burden Opportunity for innovation and experimentation

Seeks to explore how current inefficiencies can be addressed through common infrastructure without stifling innovation.

Organized by NCB Development Corporation


IDA Group

Focus on national network of IDA and asset-building practitioners and their partners.

American Dream Policy Demonstration led to creation of multiple programs now at risk due to end of ADD funding.

Seeks to connect IDA practitioners through the creation of a dual system of internet-based and in-person tools, models and activities.

Organized by CFED


CDFI Group

Focus on mid-sized CDFIs making investments in small businesses.

Current business and earnings model limits collective future.

Seeks to support CDFI delivery of products and services available through larger financial institutions to people, places and markets that are not well served by those institutions.

Organized by Shorebank Enterprise Groups


Issues facing the Community Development Industry

1. Industry Structure2. Infrastructure

3. Subsidy4. Model for achieving scale


CUSTOMERSCUSTOMERS INDUSTRY MEMBERS

INDUSTRY MEMBERS

TRADE ASSOCIATIONINDUSTRY

INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS

POLICY MAKERS& REGULATORS


Basic Model of Key Players

Industry leaders play a powerful role in setting standards and creating standardization in the industry.


Industry Structure 1


INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 1: The Corporation -Customer Dynamic

In most industries, direct interaction between the customer and the industry member is a primary factor.




INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 2: The Small Players Dynamic




INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 3: Subsidy Dependent


In industries dominated by smaller players …

… industry networks and other forms of affiliation become more important as agents for successful scale and growth.

Access to common infrastructure can enable networks of organizations to work cooperatively to deliver greater volumes of product with increased efficiency

Networks facilitate access to capital often at a lower cost of capital

Strong training and development efforts through network services support the development of management talent

Sufficient industry clout can create a more supportive legal, regulatory and policy environment and increase the availability of subsidy where needed


Community DevelopmentInnovatio

nSearching for a Better Business Model?


A Better Business Model to Allow Organizations to:

Retain local control and ownership

Lower cost of operations

Access larger pools of capital

Reduce effort devoted to fundraising

Access better management talent and specialized expertise

Increase ability to reach more people


A Better Business Model to Allow Organizations to:

Produce higher quality programs

Provide more diversified and comprehensive programming

Promote long term sustainability

Generate better pay and benefits for employees

Access more up to date technology and infrastructure

Create greater impact


Collaborative Business Models

Unified Western Grocers, Inc. Lenders One Mortgage Cooperative Credit Union Cooperative Structures Seedco: EarnFair Alliance Professional Employer Organizations (PEOs)

and Child Care Housing Partnership Network


Achieving

Sustainability,

Scale, and

Impact

in Community Development Contact Information:

Kirsten Moy and Greg [email protected] and

[email protected]

The Aspen Institute

the aspen institute federal reserve system achieving sustainability, scale, and impact in community...

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